The 2005 case became a source of embarrassment for the CIA and called attention to the controversial practice known as “extraordinary rendition,” in which terrorism suspects secretly captured in the years following the Sept. 11, 2001, attacks were delivered to governments suspected of engaging in torture.
The CIA declined to comment on Lady’s reported detention, and it was unclear whether he was taken into custody at the behest of the Italian government.
Mario E. Jaramillo, the Panamanian ambassador in Washington, confirmed Friday that Lady “has been arrested in Panama.” He added in an e-mail, “Procedures for this kind of international detentions are being followed by Panama at this moment.”
Officials at the Italian Embassy in Washington declined to comment.
Lady and other defendants in the case left Italy before the trial but were convicted in absentia. Lady could face a prison sentence of up to nine years if he is returned to Italy, according to Italian news reports.
Lady’s apprehension could create a diplomatic dilemma for the United States, which pressured the Italian government to abandon its prosecution but has never formally acknowledged that many of the defendants were CIA employees.
The case comes at a delicate time for the Obama administration, which has been seeking to block attempts by Edward Snowden, a former U.S. intelligence contractor, to seek asylum in Latin America. Snowden has been charged with stealing and then leaking information about U.S. surveillance programs.
The target of the Italian rendition was a cleric, Hassan Mustafa Osama Nasr, known as Abu Omar. CIA officials had suspected that he was part of a network funneling young Muslim recruits to al-Qaeda or other militant groups. He was on his way to a mosque in Milan on Feb. 17, 2003, when he was snatched from a sidewalk, put into a van and subsequently delivered to Egypt, according to Italian court records and media accounts.
U.S. intelligence officials involved in the case have said that the agency obtained permission from Italian intelligence to carry out the operation . But an investigation by the country’s independent judiciary identified U.S. operatives through cellphone call records and other data that exposed the agency’s clumsy tradecraft.
Lady was not directly involved in the capture of Abu Omar, but the CIA’s base chief in Milan is said to have supervised the plan. Former CIA colleagues said Lady, who spent part of his childhood in Honduras, has been living in Latin America and had served there for the CIA.
Police in Panama detained Lady as he was leaving the country to enter Costa Rica.
Lady’s apparent apprehension “is the fault of the U.S. government for not protecting its personnel with diplomatic immunity,” said Mark Zaid, an attorney for Sabrina De Sousa, who was stationed in the U.S. consulate in Milan and convicted by the Italian court. De Sousa has denied that she worked for the CIA.